Screwworm outbreak poses challenges to US DDGS demand amid uncertain cattle market

The recent outbreak of screwworm in northern Mexico is raising concerns about health of cattle herds in the region and for cross-border cattle trade into the US, source say.

Industry sources are warning the biosecurity crisis could disrupt cattle flows and pressure demand for dried distiller grains with solubles, a feed ingredient in finishing rations.

Latest US Department of Agriculture data shows March 2025 exports of DDGS to Mexico reached 227,548 mt, highlighting the country's role as a top buyer. But that outlook may weaken due to sanitary restrictions and growing competition from cheaper alternatives.

"If you do not bring any more Mexican-origin cattle up into Texas to feed, there's only so many mouths here today," said a US-based feed trader. "If you cut exports out on DDGS and you've got too much supply, it's either got to work into soybean meal in poultry rations and in dairy rations, or you've got to find more beef demand somewhere."

The trader added that while some domestic users could absorb more DDGS in poultry or dairy feed, the economics are challenging.

"As cheap as soybean meal has been here of late per unit of protein, that's going to be difficult, I think, for DDGS to find that spot where they feed in in a big way," he said.

The potential impact of government regulations or tariffs is also weighing on sentiment, the trader said.

"If regulations do get implemented in a big way, export demand would be what would be killed first," he said. "We feel that would turn domestic values down quite a bit. If it were to move in a big way, we would have to figure out how to either stockpile a product and hold and carry some of that product or figure out a way to work in some of our other actions and squeeze out."

Uncertainty is especially pronounced in northern Mexico, where cattle producers are weighing whether to halt exports of lean cattle and instead finish and slaughter them domestically due to health restrictions. But analysts caution that this shift may translate to lower feed usage.

"I'd estimate that it would decrease or remain stable rather than increase," Carlos Haaz, an independent agriculture market analyst, said. "Because the issue is how long it takes for the screw worm problem to be resolved."

"Believe me, it's going to become a really serious problem," Haaz added. "Even if the cattle that's fattened in the north and finished in the US, it can't be moved, the problem is that too many 'weapons' are being used against the market right now, figuratively, for negotiation purposes."

Haaz emphasized the need for sanitary protocols to allow certified cattle to continue moving. "That would be the ideal scenario," he said.

DDGS spread $25/mt over corn

The economics of feed formulation are weighing heavily on DDGS usage. In conversations with industry contacts in northern Mexico, an agriculture market source confirmed that feedlots are under margin pressure and becoming more price-sensitive, particularly regarding imported DDGS.

"The DDGS-to-corn spread in recent weeks has widened," the market source said. "Right now, DDGS are $25 more expensive," he said, referring to the price gap between DDGS and alternative feed ingredients. "So that discourages DDGS imports, and as long as that spread holds or increases, I find it very difficult for DDGS demand to rise."

To remain competitive in feed rations, particularly in Mexico, DDGS will likely need to be priced more attractively relative to other ingredients like corn and soybean meal. With the current $25/mt spread over corn, many buyers are opting for cheaper and more familiar alternatives, limiting DDGS's growth potential despite its nutritional advantages.

Although DDGS are valued for their protein, energy and fiber, current corn and soybean meal prices, along with the negative outlook, have made them less competitive in feed formulas.

Carlos Haaz also pointed to structural challenges in the broader feed market, including changes in US soybean and corn quality and the resurgence of alternative grains like sorghum.

"Those who already use [DDGS] properly, especially poultry farmers and dairy producers are unlikely to stop using it," he said. "That won't change. As long as their nutritionists continue recommending it, they'll stick with it."

But for the cattle sector, uncertainty around disease containment and feed cost dynamics is likely to shape DDGS trade in the coming months. While Mexico remains a vital outlet for US DDGS, the combined weight of biosecurity concerns and unfavorable price spreads could limit growth potential in the near term.

Platts assessed DDGS CIF New Orleans for June delivery at $193/st, while the Chicago DDGS truck market was assessed at $167/st.

Platts is part of S&P Global Commodity Insights.